UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 8-K

 

 

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): December 5, 2017

 

FRANCESCA’S HOLDINGS CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

001-35239   Delaware   20-8874704
(Commission File Number)   (State or Other Jurisdiction of Incorporation)   (I.R.S. Employer Identification No.)
         

8760 Clay Road,

Houston, Texas

     

 

77080

 (Address of Principal Executive Offices)       (Zip Code)

 

(713) 864-1358

(Registrant’s Telephone Number, Including Area Code)

 

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company   ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨

 

 

 

 

 

 

Item 2.02. Results of Operations and Financial Condition.

 

On December 5, 2017, Francesca’s Holdings Corporation (the “Company”) issued a press release announcing its consolidated financial results for the fiscal third quarter ended October 28, 2017. A copy of the press release is furnished as Exhibit 99.1 to this report. This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

Item 9.01. Financial Statements and Exhibits.

 

99.1 Press Release issued by Francesca’s Holdings Corporation on December 5, 2017.

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    FRANCESCA’S HOLDINGS CORPORATION
       
Date: December 5, 2017 By: /s/ Kal Malik
      Kal Malik
      Chief Administrative Officer

 

 

 

Exhibit 99.1

 

 

francesca’s® Reports Third Quarter Fiscal Year 2017 Financial Results

 

·Net sales, comparable sales and diluted earnings per share were within guidance range
·Net sales decreased 11% to $105.8 million and comparable sales decreased 18%
·Diluted earnings per share were $0.01
·Company revises full year guidance

 

HOUSTON, TEXAS — December 5, 2017 — Francesca’s Holdings Corporation (NASDAQ: FRAN) today reported financial results for the third quarter ended October 28, 2017.

 

Steve Lawrence, President and CEO, stated, “While our third quarter was a challenging period, we took decisive steps to improve our positioning as we head into the holiday season and beyond. As we previously discussed, our sales results were impacted by merchandise missteps that impacted our business throughout the third quarter. Additionally, comparable sales results were impacted by an estimated 425 basis points from hurricanes Harvey and Irma. We have taken aggressive action to get us back on track by refocusing on our core consumer and delivering on our mission of surprising and delighting every guest, every time with a unique, trend-right assortment at a great value. We have seen business get progressively better as the new receipts have landed and November comparable sales have sequentially improved from our third quarter performance. That being said, we still have a lot of work ahead of us.

 

“Looking ahead, we remain focused on the initiatives that will be critical for our success in the long term. We have spent the better part of 2017 putting in place building blocks for our future with the infrastructure investments we have made. Growing our ecommerce business remains our number one long term focus and many of the things we have put in place this year will help us drive our online business now and in the future. We are also taking steps to rationalize our store fleet with a focus on openings in A and B malls and closings in C and D malls. We believe this strategy is aligned with our goal to be in the most relevant locations. Overall, we remain focused on taking steps to reinvigorate our merchandise assortments and making investments in our business that will drive sustainable profitable growth for the long term.”

 

THIRD QUARTER RESULTS

 

Net sales decreased 11% to $105.8 million from $119.5 million in the comparable prior year quarter. This decrease was due to an 18% decrease in comparable sales compared to a 7% increase in the comparable prior year period. Comparable sales decreased primarily due to a decline in boutique traffic and conversion rates as the back-to-school assortment did not resonate with guests. Additionally, Hurricanes Harvey and Irma negatively impacted comparable sales by approximately 425 basis points, mostly as a result of the supply chain disruption the Company experienced at its corporate offices located in Houston, Texas. These decreases were partially offset by the addition of 45 net new boutiques since the end of the third quarter last year and $1.5 million of additional gift card breakage income recognized during the quarter as a result of a change in the estimated period over which redemption of gift cards is considered remote. The Company opened 23 new boutiques and closed one boutique during the quarter, bringing the total count to 714 at the end of the quarter.

 

Gross profit, as a percent of net sales, decreased to 39.6% from 48.2% in the prior year quarter. This was due to a decrease in merchandise margin and deleveraging of occupancy costs. The decrease in merchandise margin was due to increased markdowns in order to sell-through our back-to-school assortment.

 

Selling, general and administrative expenses decreased 1% to $41.4 million from $41.9 million in the prior year quarter. This decrease was primarily due to a decrease in short- and long-term performance-based incentive expenses partially offset by increases in boutique and corporate payroll, software, professional fees and marketing expenses.

 

Income from operations was $0.5 million, or 0.4% of net sales, compared to $15.8 million, or 13.2% of net sales, in the prior year quarter.

 

 

 

 

BALANCE SHEET SUMMARY

 

Total cash and cash equivalents at the end of the third quarter were $19.0 million compared to $24.7 million at the end of the comparable prior year quarter. During the third quarter, the Company repurchased 0.5 million shares of its common stock at a total cost of $3.5 million.

 

The Company ended the quarter with $38.8 million of inventory on hand compared to $42.8 million at the end of the comparable prior year period. Average ending inventory per boutique decreased by 15% compared to the comparable prior year period as the Company continues to diligently control inventory through enhanced inventory management processes that began in the second quarter of 2016.

 

FOURTH QUARTER AND REVISED FISCAL YEAR 2017 GUIDANCE

 

For the fourth quarter ending February 3, 2018, net sales are expected to be in the range of $145 million to $150 million; assuming a decrease of 9% to 12% in comparable sales compared to flat comparable sales in the prior year. The Company plans to open nine new boutiques during the fourth quarter. Diluted earnings per share for the fourth quarter are expected to be in the range of $0.35 to $0.40 compared to $0.39 in the prior year.

 

For the fiscal year ending February 3, 2018, net sales are now expected to be in the range of $478 million to $483 million; assuming a decrease of 9% to 10% in comparable sales compared to the prior year increase of 2%. The Company expects to open 60 boutiques and close eight boutiques in fiscal year 2017, compared to 64 new boutiques opened and nine boutiques closed in fiscal year 2016. Diluted earnings per share are now expected to be in the range of $0.67 to $0.72 compared to the prior year of $1.09. The number of average diluted shares for the full year assumed in guidance is 36.3 million shares. The effective tax rate is estimated to be 38.7%.

 

Capital expenditures for fiscal year 2017 are expected to be in the range of $30 million to $33 million.

 

Conference Call Information

 

A conference call to discuss the third quarter results is scheduled for December 5, 2017, at 8:30 a.m. ET. A live webcast of the conference call will be available in the investor relations section of the Company’s website, www.francescas.com. A replay of the call will be available after the conclusion of the call and remain available until December 12, 2017. To access the telephone replay, listeners should dial 1-844-512-2921. The access code for the replay is 6325605. A replay of the webcast will also be available shortly after the conclusion of the call and will remain on the website for ninety days.

 

Forward-Looking Statements

 

Certain statements in this release are "forward-looking statements" made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements reflect our current expectations or beliefs concerning future events and are subject to various risks and uncertainties that may cause actual results to differ materially from those that we expected. These risks and uncertainties include, but are not limited to, the following: the risk that we cannot anticipate, identify and respond quickly to changing fashion trends and customer preferences or changes in consumer environment, including changing expectations of service and experience in boutiques and online, and evolve our business model; our ability to attract a sufficient number of customers to our boutiques or sell sufficient quantities of our merchandise through our ecommerce business; our ability to successfully open and operate new boutiques each year; our ability to efficiently source and distribute additional merchandise quantities necessary to support our growth and our ability to successfully integrate our new Chief Merchant. For additional information regarding these and other risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to "Risk Factors" in our Annual Report on Form 10-K for the year ended January 28, 2017 filed with the Securities and Exchange Commission on March 22, 2017 and any risk factors contained in subsequent quarterly and annual reports we file with the SEC. We undertake no obligation to publicly update or revise any forward-looking statement.

 

 

 

 

About Francesca's Holdings Corporation

 

francesca's® is a growing specialty retailer which operates a nationwide-chain of boutiques providing customers a unique, fun and personalized shopping experience. The merchandise assortment is a diverse and balanced mix of apparel, jewelry, accessories and gifts. Today francesca's® operates approximately 714 boutiques in 47 states and the District of Columbia and also serves its customers through francescas.com. For additional information on francesca's®, please visit www.francescas.com.

 

CONTACT:  
ICR, Inc. Company
Jean Fontana Kelly Dilts 832-494-2236
646-277-1214 Kate Venturina 832-494-2233
  IR@francescas.com

 

 

 

 

Francesca’s Holdings Corporation

Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts, Percentages and Basis Points)

 

   Thirteen Weeks Ended             
   October 28, 2017   October 29, 2016   Variance 
   In USD   As a %
of Net
Sales(1)
   In USD   As a %
of Net
Sales(1)
   In USD   %   Basis
Points
 
Net sales  $105,791    100.0%  $119,470    100.0%  $(13,679)   (11)%   - 
Cost of goods sold and occupancy costs   63,931    60.4%   61,843    51.8%   2,088    3%   860 
Gross profit   41,860    39.6%   57,627    48.2%   (15,767)   (27)%   (860)
Selling, general and administrative expenses   41,405    39.1%   41,872    35.0%   (467)   (1)%   410 
Income from operations   455    0.4%   15,755    13.2%   (15,300)   (97)%   (1,280)
Interest expense   (109)   (0.1)%   (131)   (0.1)%   (22)   (17)%   - 
Other income   88    0.1%   79    0.1%   9    11%   - 
Income before income tax expense   434    0.4%   15,703    13.1%   (15,269)   (97)%   (1,270)
Income tax expense   195    0.2%   6,009    5.0%   (5,814)   (97)%   (480)
Net income  $239    0.2%  $9,694    8.1%  $(9,455)   (98)%   (790)

 

 

(1) Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding.

 

Diluted earnings per share  $0.01        $0.26                     
Weighted average diluted share count   35,959         37,675                     
                                    
Comparable sales   (18)%    7%                

 

   Thirty-Nine Weeks Ended             
   October 28, 2017   October 29, 2016   Variance 
   In USD   As a %
of Net
Sales(1)
   In USD  

As a % 

of Net
Sales(1)

   In USD   %   Basis
Points
 
Net sales  $333,187    100.0%  $340,843    100.0%  $(7,656)   (2)%   - 
Cost of goods sold and occupancy costs   187,249    56.2%   180,149    52.9%   7,100    4%   330 
Gross profit   145,938    43.8%   160,694    47.1%   (14,756)   (9)%   (330)
Selling, general and administrative expenses   126,338    37.9%   116,353    34.1%   9,985    9%   380 
Income from operations   19,600    5.9%   44,341    13.0%   (24,741)   (56)%   (710)
Interest expense   (332)   (0.1)%   (353)   (0.1)%   (21)   (6)%   - 
Other income   278    0.1%   118    0.0%   160    136%   10 
Income before income tax expense   19,546    5.9%   44,106    12.9%   (24,560)   (56)%   (700)
Income tax expense   7,711    2.3%   16,740    4.9%   (9,029)   (54)%   (260)
Net income  $11,835    3.6%  $27,366    8.0%  $(15,531)   (57)%   (440)

 

 

(1)  Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding.

 

Diluted earnings per share  $0.32        $0.70                     
Weighted average diluted share count   36,525         38,945                     
                                    
Comparable sales   (9)%    3%                

 

 

 

 

Francesca’s Holdings Corporation

Consolidated Balance Sheets

(In thousands, except share and per share amount)

 

   October 28,
2017
   January 28,
2017
   October 29,
2016
 
ASSETS               
                
Current assets:               
Cash and cash equivalents  $19,020   $53,202   $24,725 
Accounts receivable   18,150    5,605    8,218 
Inventories   38,824    23,958    42,774 
Deferred income taxes   -    8,487    5,709 
Prepaid expenses and other current assets   10,179    8,823    7,745 
Total current assets   86,173    100,075    89,171 
Property and equipment, net   85,710    80,484    82,992 
Deferred income taxes   15,577    6,978    4,425 
Other assets, net   3,794    2,056    1,370 
TOTAL ASSETS  $191,254   $189,593   $177,958 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY               
                
Current liabilities:               
Accounts payable  $28,239   $9,205   $16,550 
Accrued liabilities   12,848    25,761    16,629 
Total current liabilities   41,087    34,966    33,179 
Landlord incentives and deferred rent   38,327    38,092    38,821 
Total liabilities   79,414    73,058    72,000 
                
Commitments and contingencies               
                
Stockholders’ equity:               
Common stock - $0.01 par value, 80.0 million shares authorized; 46.4 million, 46.1 million and 46.1 million shares issued at October 28, 2017, January 28, 2017 and October 29, 2016, respectively.   464    461    461 
Additional paid-in capital   111,065    109,008    107,908 
Retained earnings   155,319    143,557    128,922 
Treasury stock, at cost – 10.2 million, 8.5 million and 8.3 million shares at October 28, 2017, January 28, 2017 and October 29, 2016, respectively.   (155,008)   (136,491)   (131,333)
Total stockholders’ equity   111,840    116,535    105,958 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $191,254   $189,593   $177,958 

 

 

 

 

Francesca’s Holdings Corporation

Consolidated Statements of Cash Flows

(In thousands)

 

   Thirty-Nine Weeks Ended 
   October 28, 2017   October 29, 2016 
Cash Flows Provided by Operating Activities:          
Net income  $11,835   $27,366 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   15,749    14,415 
Stock-based compensation expense   2,082    18 
Excess tax benefit from stock-based compensation   -    (2)
Loss on disposal of assets   565    265 
Deferred income taxes   (65)   (81)
Impairment charges   100    66 
Changes in operating assets and liabilities:          
Accounts receivable   (12,272)   1,364 
Inventories   (14,866)   (11,233)
Prepaid expenses and other assets   (3,529)   (1,294)
Accounts payable   16,987    2,015 
Accrued liabilities   (12,913)   301 
Landlord incentives and deferred rent   235    2,269 
Net cash provided by operating activities   3,908    35,469 
           
Cash Flows Used in Investing Activities:          
Purchases of property and equipment   (19,121)   (18,666)
Other   -    8 
Net cash used in investing activities   (19,121)   (18,658)
           
Cash Flows Used in Financing Activities:          
Repurchases of common stock   (18,827)   (48,715)
Taxes paid related to net share settlement of equity awards   (142)   - 
Proceeds from the exercise of stock options   -    403 
Excess tax benefit from stock-based compensation   -    2 
Net cash used in financing activities   (18,969)   (48,310)
           
Net decrease in cash and cash equivalents   (34,182)   (31,499)
Cash and cash equivalents, beginning of year   53,202    56,224 
Cash and cash equivalents, end of period  $19,020   $24,725 
           
Supplemental Disclosures of Cash Flow Information:          
Cash paid for income taxes  $23,806   $13,014 
Interest paid  $144   $143 

 

 

 

 

Francesca’s Holdings Corporation

Supplemental Information

 

Quarterly Sales by Merchandise Category

 

   Thirteen Weeks Ended     
   October 28, 2017   October 29, 2016   Variance 
   In Dollars   As a % of
Net Sales
   In Dollars   As a % of
Net Sales
   In Dollars   % 
   (in thousands, except percentages) 
Apparel(1)  $54,663    51.7%  $64,013    53.6%  $(9,350)   (15)%
Jewelry   22,826    21.6%   26,143    21.9%   (3,317)   (13)%
Accessories(1)   15,360    14.5%   17,346    14.5%   (1,986)   (11)%
Gifts   10,922    10.3%   11,638    9.7%   (716)   (6)%
Merchandise sales   103,771    98.1%   119,140    99.7%   (15,369)   (13)%
Other (2)   2,020    1.9%   330    0.3%   1,690    512%
   $105,791    100.0%  $119,470    100.0   $(13,679)   (11)%

 

 

(1)In the first quarter of fiscal 2017, swimwear was reclassified out of accessories to apparel. To facilitate comparability, prior year amounts were reclassified.
(2)Includes gift card breakage income, shipping and change in return reserve.

 

Quarterly Comparable Sales

 

   FY 2017   FY 2016   FY 2015 
Q1   (5)%   2%   (2)%
Q2   (3)%   0%   (4)%
Q3   (18)%   7%   4%
Q4        0%   11%
Fiscal year        2%   3%

 

Boutique Count

 

   Thirty-Nine Weeks Ended
October 28, 2017
   Fiscal Year Ended
January 28, 2017
   Thirty-Nine Weeks Ended
October 29, 2016
 
Number of boutiques open at the beginning of period   671    616    616 
Boutiques opened   51    64    59 
Boutiques closed   (8)   (9)   (6)
Number of boutiques open at the end of period   714    671    669